Paywalls: Can They Save Newspapers?

Paywalls are all the rage lately. Over the past few months they’ve been popping up in front of Canadian online news at an unprecedented rate. The Globe and Mail launched their metered paywall on October 22nd. Newspaper chain Postmedia paywalled several of its papers last month and plans to do the same with the rest early in 2013. And with the Toronto Star announcing earlier this week that they’ll also be putting up a paywall in the new year, it looks like the days of unrestricted online news are coming to an end. The big question: is this the answer to the newspaper industry’s woes?

It’s been a grim few years for newspapers, with ad revenues plunging sharply. Paywalls see publishers attempting to generate revenue from circulation to make up for what’s been lost from advertising.

They’ve been tried before with poor results. But that was then. This is five years later. And these are kinder, gentler paywalls – a more "flexible and responsive" model that offers limited free content and a number of ways to get around those limits.

So are readers now ready to pony up for digital subscriptions?

It looks like they might be. The New York Times, whose metered paywall offers readers 10 free articles per month, saw their digital subscription rate rise by 11% between June and September of this year. These subscription gains offset continuing losses to their advertising revenue. U.S. media company Gannett, which now has paywalls on 71 of its newspapers, saw its net operating revenues from print increase this year, reversing a trend of declining revenues during the previous year.

But there are many who see paywalls as a losing proposition. One question is, will gains in subscriptions continue to climb and offset the losses to ad revenue? While digital subscriptions are rising strongly right now, some speculate that the increases will taper off. What’s more, how can newspapers with less cachet than the Times be sure that their brands are strong enough to attract paying customers? Although Canada’s three biggest newspapers will soon be behind paywalls, there are still free sources of news available. Will Canadian newspaper paywalls inspire loyalty or drive readers elsewhere after they’ve used up their monthly allotment of free stories?

The situation is far from clear-cut. Even as newspapers across Canada put up paywalls, other publications are concluding that they don’t work. The Hollywood trade paper Variety reversed its position last month, pledging to take down its two-and-a-half-year-old paywall within the next few months.

In the short term, though, this new round of metered and semi-permeable paywalls has the potential to slow the decline in newspaper revenues. Recent reports about digital subscription gains in the U.S. seem to have had an impact on investor confidence, with many newspaper stocks seeing increases in 2012.

Paywalls may not be the entire answer to the newspaper industry’s woes, but it looks like they might be part of the equation. At the very least, maybe they’ll buy publishers enough time to figure out some other strategies for long-term survival.

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